Massachusetts Tries to Rein In Its Health Costs
By ABBY GOODNOUGH and KEVIN SACK
Published: October 17, 2011

BOSTON — On the Republican campaign trail, the health care debate has focused on the mandatory coverage that Mitt Romney signed into law as governor in 2006. But back in Massachusetts the conversation has moved on, and lawmakers are now confronting the problem that Mr. Romney left unaddressed: the state’s spiraling health care costs.

After three years of study, the state’s legislative leaders appear close to producing bills that would make Massachusetts the first state — again — to radically revamp the way doctors, hospitals and other health providers are paid.

Although important details remain to be negotiated, the legislative leaders and Gov. Deval Patrick, all Democrats, are working toward a plan that would encourage flat “global payments” to networks of providers for keeping patients well, replacing the fee-for-service system that creates incentives for excessive care by paying for each visit and procedure.

“We have shown the nation how to extend care to everybody,” Mr. Patrick said in an interview, “and we’ll be the place to crack the code on costs.”

Those who led the 2006 effort to expand coverage readily acknowledge that they deferred the more daunting task of cost control for another day. It was assumed then that the politics would pit doctors, hospitals, insurers, employers and consumers against one another, and obliterate the fragile coalition behind the groundbreaking coverage law.

Predictably, the plan did little to slow the growth of health costs that already were among the highest in the nation. A state report last year found that per capita health spending in Massachusetts was 15 percent above the national average. And from 2007 to 2009, private health insurance premiums rose between 5 and 10 percent annually, according to another state study.

Yet the plan, which generated fresh attacks on Mr. Romney in a recent New Hampshire debate and a blistering Internet ad by Gov. Rick Perry of Texas, has largely succeeded in providing nearly universal coverage. Only 2 percent of residents and a fraction of 1 percent of children in Massachusetts are uninsured. The law’s popularity has given state leaders added incentive to make it financially sustainable.

But the process has been painstakingly slow. It started in 2008, when the Legislature appointed a commission to study changes in the medical payment system. A year later, the commission recommended the broad outlines of a global payment plan that essentially calls for teams of providers to be put on a budget for each patient’s care.

The networks would receive an annual fee for the care of each patient, with higher payments for patients deemed to be greater health risks and with bonuses for high-quality care. In theory, the healthier these so-called accountable care organizations can keep their patients, the more reimbursement they can pocket as profit. Insurers are already required to accept all applicants in Massachusetts, as will be the case nationally, in 2014, if the new federal health care law survives its legal and political challenges.

In February, three months after Mr. Patrick’s re-election, he submitted a bill that would impose a global payment system for most state employees, Medicaid recipients and others with state-subsidized health insurance — roughly one in four residents.

His plan would set parameters to help private insurers and providers follow suit, in the hope that they would gradually gravitate to global payments, without coercive legislation. And it would give the state’s insurance commissioner broader authority to reject premium increases deemed excessive, with an added goal of holding down hospital costs.

Lawmakers in each chamber have struggled to draft their own proposals, which they hope to bring to a vote by early next year. In the House, one idea is to move health care providers to a global payment system within three years, with a goal of keeping health care spending increases to about 3.9 percent a year after that — roughly the typical growth in the state’s gross domestic product.

But State Representative Steven Walsh, House chairman of the Joint Committee on Health Care Financing, said it would be crucial to move slowly, adding that it could take 15 years “to squeeze all the inequities out of the system.”

Because medical spending is driven not just by volume but also by pricing, a major question has been whether global payments alone will have much effect. It may be equally important, Mr. Patrick and others argue, to rein in the ability of the state’s most prestigious teaching hospitals and physicians’ groups to negotiate high rates of reimbursement.

A series of news media and government investigations have revealed that large, high-status providers, like Partners HealthCare System, which owns the Harvard-affiliated Massachusetts General and Brigham & Women’s hospitals, command substantially higher reimbursement from insurers than other entities.

In reports the last two years, Attorney General Martha Coakley, a Democrat, has concluded that differences in payments to hospitals cannot be explained by variations in their quality, the mix of their patients or the costs of academic medicine. Last month, the House majority leader, Representative Ronald Mariano, introduced a bill that would force insurers to narrow the inequities in payments.

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Mr. Patrick said the state needed to help struggling hospitals by raising Medicaid reimbursement rates. But he also cited his insurance commissioner’s recent denials of premium increases as the kind of pressure needed to keep prices down. “I think having the authority that we have in respect to the insurers has been a very, very important tool,” Mr. Patrick said, “and we need similar authority with the hospitals.”

Massachusetts has had a model for global payments since 2009, when Blue Cross Blue Shield of Massachusetts, the state’s biggest health insurer, began experimenting with an “alternative quality contract” that pays groups of doctors and hospitals a set fee to work as a team in caring for patients. The plans cover about 613,000 people, or roughly two-thirds of Blue Cross members in health maintenance organizations, but none of those in preferred provider organizations.

This month, in an important advance, Partners HealthCare joined the program, with incentives to keep cost growth below the Blue Cross average.

“It’s a big deal,” said Stuart Altman, a health economist at Brandeis, “because they’re the biggest player in town and it sort of solidifies that this will be one of the major changes in the system and that it’s likely to be around for a while.”

Under market and political pressure, Partners also agreed to renegotiate its contract with Blue Cross Blue Shield and accept lower reimbursements, which is expected to save $240 million over three years. Andrew Dreyfus, president of Blue Cross Blue Shield of Massachusetts, said payments to Partners would increase at about 2 percent a year rather than the previously anticipated 5 percent to 6 percent.

The politically powerful hospitals clearly hope to persuade lawmakers that price controls are not needed. “This contract is evidence that at Partners, we think the market is working to address affordability,” said a company spokesman, Rich Copp.

Mr. Patrick said such experiments were important, but did not go far enough. “We still need a bill because we’ve got to have scale,” he said. “It can’t be one-offs.”

Initial resistance is also expected from doctors. The most recent annual work force study by the Massachusetts Medical Society found that nearly 60 percent of physicians — and higher rates of specialists — said they were not likely to join a voluntary global payment system.

But Mr. Walsh said that doctors and other stakeholders were becoming more comfortable with the idea. “It’s not seen as a foreign approach anymore,” he said.

When has govt ever lowered costs for the consumer while not affecting services?

A properly functioning market lowers costs through competition and innovation. Govt lowers cost by price fixing. The latter is never accepted by the providers, and they in turn provide less service, less quality, etc.

Good luck to MA. Given that they already have some of the highest health care costs in the nation, anything would be an improvement.

A properly functioning market lowers costs through competition and innovation. Govt lowers cost by price fixing. The latter is never accepted by the providers, and they in turn provide less service, less quality, etc.

If this is true then why are health costs spiraling out of control??

The profit motive hasn't worked for medicine. Our health care is the most expensive, yet our health is poor.

Replacing the profit motive with a motive to keep people healthy, will radically change the system, which is what is needed. This has worked elsewhere in the world.

quote: A properly functioning market lowers costs through competition and innovation. Govt lowers cost by price fixing. The latter is never accepted by the providers, and they in turn provide less service, less quality, etc.

If this is true then why are health costs spiraling out of control??

We haven't had a properly functioning market for health care in over 40 years. Since the 1965 enactment of Medicare, govt's intrusion into to provider/customer relationship - and their expanding control of all elements of that industry - has completely distorted any semblance of what happens in a free market between customer and provider.

Simple question: if you are employed - as most folks receiving health care benefits are - do you have multiple providers of health care competing for your business? No?

How can you have viable market forces doing what they normally do if the most of the customers have no ability to chose from numerous competing entities?

Single payer system may be the answer; but the only way to determine if this is the case is to unlink health insurance from employment. It is insane that individuals and small businesses are denied the same price structure. It is even crazier that if one leaves a job they lose their health insurance. Imagine if you could only insure your car through work?

The reason Medicare was created was because the wonderful private health insurance industry that you seem to love so much wouldn't insure retired people at a reasonable price. If the market would have worked as you claim there would have been no need for Medicare to begin with.

[Edited on 10/20/2011 by Peachypetewi]

____________________"Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all". John Maynard Keynes

quote:The reason Medicare was created was because the wonderful private health insurance industry that you seem to love so much wouldn't insure retired people at a reasonable price. If the market would have worked as you claim there would have been no need for Medicare to begin with.

The market does work. Just because health insurance for older folks was too expensive for many to afford doesn't mean the market wasn't working. It's simply a clear indication that those services can't be provided at anything but high cost.

Medicare hasn't changed that one iota. Costs to provide health care to that group are still astronomical. Compound that with govt inefficiency, huge fraud, low rates of accountability, and a classic govt Ponzi setup (unfunded liabilities) and we have a system set to bankrupt itself, or us, or both. All Medicare has done is to delay the inevitable.

Medicare hasn't improved costs. Its just postponed the inevitable reality of having to deal with those costs by temporarily spreading the liabilities. Just like all govt 'insurance' programs, it has no resemblance to what real insurance providers must do to run a sustainable business. Govt doesn't care about sustainability in these ventures. They rely on their ability to take more from us in the future, print up new money, or force conditions via legislation as their path to solving future problems. No business can operate that way, but at the same time, the end consumer is usually damaged by any of govt's 'remedies' (higher taxes, inflated currency, less services, less choices, etc)

Ultimately there is no free lunch. The only proven path to reduce costs on consumer goods and services is competition and the free market. We may not always like the answers that come back from the market, but believing that govt can improve that equation has very little basis in fact.

quote:The only proven path to reduce costs on consumer goods and services is competition and the free market. We may not always like the answers that come back from the market, but believing that govt can improve that equation has very little basis in fact.

So, to be absolutely, factually clear...the ACA did not create 30 to 40 million new customers for private healthcare companies?

quote:The only proven path to reduce costs on consumer goods and services is competition and the free market. We may not always like the answers that come back from the market, but believing that govt can improve that equation has very little basis in fact.

So, to be absolutely, factually clear...the ACA did not create 30 to 40 million new customers for private healthcare companies?

Of course it did. But it sets conditions such that it's likely those businesses will fail operating under all the new govt oversight, restrictions, price fixing, and demands.

Its fairly obvious that the ACA architects established it as the first step to full-on govt socialized health care. How often did we hear comments by the key proponents when speaking to those disgruntled by the lack of a public option that this is only the first step? They've set up an impossibly complex system doomed to fail because they couldn't get to socialized care in one step. And as we see, it's already falling apart as the Administration is casting off parts of it.

But all this avoids what's always been the key issue: costs. Nothing in the ACA helps that. And 45 years of Medicare has not helped that. Its doubtful that any new govt scheme will change that without altering what's available to the consumer.

quote: The market does work. Just because health insurance for older folks was too expensive for many to afford doesn't mean the market wasn't working. It's simply a clear indication that those services can't be provided at anything but high cost.

So we should just let retired people die because they can't afford medicine? That's what we still have even with Medicade. Folks on fixed incomes that can't afford the rising cost of healthcare, food and energy.
So the choice for them is to starve, freeze or die because they can't afford these basic necessity.
That is not a solution.

We need a single payer system because Medicine for Profit has failed to include everyone.
The system is broken and not from Gov't intervention.

quote: The market does work. Just because health insurance for older folks was too expensive for many to afford doesn't mean the market wasn't working. It's simply a clear indication that those services can't be provided at anything but high cost.

So we should just let retired people die because they can't afford medicine? That's what we still have even with Medicade. Folks on fixed incomes that can't afford the rising cost of healthcare, food and energy.
So the choice for them is to starve, freeze or die because they can't afford these basic necessity.
That is not a solution.

We need a single payer system because Medicine for Profit has failed to include everyone.
The system is broken and not from Gov't intervention.

Medicare's going broke, and we will not be able to afford it as-is without cutting services. While I'd be the first one to say that there are plenty of other govt activities that can be cut in order to help finance it, that won't happen to anywhere the degree necessary to cover all costs and face up to our other debts. Services will be cut, the net result of which will negatively impact people's lives.

I'm not being cold-hearted by pointing out the reality that we don't have sufficient wealth to both cover the costs and provide all the care that people may feel they need. I don't like it anymore than anyone else, but that doesn't change the math.

Denying that economic reality excludes realistic solutions and ends up helping no one.

Until proof exists that our govt can find a way to make a buck buy more, isn't it wishful thinking to believe otherwise? Hope is not a strategy.

All these diversions still don't confront the most important problem: how are the costs of products and services reduced for the consumer? The only consistent and provable path to achieve that goal has been competiton and a free market. Health care is the most regulated and controlled industry in our nation. We have a govt that's produced no evidence that it can reduce these costs, and at the same time it controls this industry so tightly that normal market forces can't work to improve costs. We have the worst of both worlds and no one is willing to try anything different.

quote:The only consistent and provable path to achieve that goal has been competiton and a free market.

Yes. Let's trade our lives in the market and on Wall Street. Doing so with our homes was such a smashing success.

Tell that to the millions of people in Europe, Canada and on Medicare here in the US whose lives have been saved because they have affordable health care. I'm not the least bit interested in pursuing that libertarian ideology when so many lives are at stake. No thank you.

____________________"Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all". John Maynard Keynes

quote:The only consistent and provable path to achieve that goal has been competiton and a free market.

Yes. Let's trade our lives in the market and on Wall Street. Doing so with our homes was such a smashing success.

And the fiscal trajectory of Medicare is any better?

The endless search for the ironclad guarantee is pointless and impossible - all the moreso when placing trust that govt can do it better for you than you can for yourself.

Life is full of risk, decisions, and associated costs.

Nothing will ever change that.

I never asked for any ironclad guarantee.

You'd happily place your life on a balance sheet to be bought and sold in the best interests of particular financial principles. Not for me, thanks.

You're already at the mercy of a fiscal equation in regard to this topic. There's 'x' amount of wealth available to buy 'y' amount of service. That's the reality for everyone.

The question comes down to how to get as much of the services as possible for a given cost.

Medicare has had 45+ years to try to improve this. They dictate what they will pay, how they will pay, and what they will cover. They control about half of the country's health care expeditures. Have they proved they can lower costs via anything they have done? Let's see...

-- They lose an estimated $100 to $200 billion per year due to fraud.

-- They audit less than 5% of their transactions. To raise that substantially in order to cut down on the fraud, their admin costs will soar.

I'm well aware of all that. Now, if say the private sector were to maximize the costs to the consumer purely in the interests of profit, you'd have no problem with that, I'd wager?

The notion of all these insurance companies duking it out over the customers available in the free market is nifty and quaint, but the world doesn't work that way anymore. There's no longer a bunch of wireless phone companies, there's now 3 or 4 huge ones. There's no longer a Main Street in small town America with a community of small business owners, there's now a Walmart out by the interstate. How many truly big banks are there anymore? Four? Five? In a completely privatized health insurance arena, how many companies do you think there will be?

It's a system full of problems for sure. But, number one, as a person at the ripe old age of 41, I'm already planning on things like Medicare and SS not being there anyway. I have a retirement portfolio, small at this point, but it's there, and it's all based on the markets. I had a bigger savings at one time which is now gone, but of course I'm supposed to blame the government for that even when I personally sat in meetings and on conference calls in the heart of the subprime financial private sector and there wasn't a government official to be found anywhere and heard all kinds of damage being done. That's of course a ridiculous notion, because I'm sure a completely privatized health care system will care first and foremost about people, not profit, right? Number two, you have rejected all forms of government anything as worthless. I don't agree. I don't think that government is infallible, but I do not regard it as completely incapable, either.

When you so happily trot out the figures about how bad Medicare is and has been, I feel compelled to ask...has the fact that human beings have gotten medical care over the years a good thing or bad thing, big picture? Or do you only look at people as consumers and customers?

quote: When you so happily trot out the figures about how bad Medicare is and has been, I feel compelled to ask...has the fact that human beings have gotten medical care over the years a good thing or bad thing, big picture? Or do you only look at people as consumers and customers?

Emotions over an individual's situation are of course there. But emotions aren't going to solve what is a numeric problem. The people who provide the services must be paid, the equipment and consumables used must be purchased, and the facilities in which this all takes place cost money to build and maintain.

Amongst all that, insurance company costs are a single digit percentage of the overall expense. And since some entity has to administer these systems anyway, a good part of that will remain.

I realize, as Spacemonkey accurately points out, that other countries have found ways to provide more for less. We haven't. And nothing proposed or enacted so far is changing that. Many of the countries who have been able to provide a greater range of coverage for their citizens via socialized care can afford to do so because the US has borne the lion's share of their defense costs for 60+ years. Would Germany, France, the UK, Korea, and Japan have the same broad social health care program if they also had to foot the majority of their own defense bill? Hard to say, but it seems doubtful. And as their debt problems raise, these services are being cut.

I use Medicare as an example because they cut out the insurance providers and pay the docs and hospitals directly. They represent the single largest provider of care in dollar terms in our country. And they've had decades to show if our govt can more efficiently use the dollars given it to provide care versus other options. Hard to give them a passing grade if that is the goal. So from where comes the faith that our govt can somehow reverse an already abysmal performance?

quote: you have rejected all forms of government anything as worthless.

Not remotely true, but the endless need to characterize what you think I believe is always entertaining.

Our military is excellent. The post office provides a terrific service. Our courts do a fine job, on balance. Respect for property and contracts, while not what it once was, is still better than in most places. The FAA controls the airspace with a reasonable degree of proficiency and safety. There are many basic functions that I value in our govt.

Our biggest problem areas are where we have let the Federal govt bribe the people with their own money into thinking they can provide better social services than they could for themselves, where we have let unions acquire collective bargaining for public sector jobs, and where we let bankers have control over our currency. Those mistakes are unraveling, and the resulting chaos will make the last fiscal crisis look like a day at the beach.

quote:Emotions over an individual's situation are of course there. But emotions aren't going to solve what is a numeric problem. The people who provide the services must be paid, the equipment and consumables used must be purchased, and the facilities in which this all takes place cost money to build and maintain.

It's so easy to pass a dismissive wave over "emotions." We're talking about people's lives. It's just not that simple or easy.

I used to think differently until I moved into the field I am now. Believe me, things aren't that simple.

quote:Amongst all that, insurance company costs are a single digit percentage of the overall expense. And since some entity has to administer these systems anyway, a good part of that will remain.

You don't think that single digit percentage will be maximized in any way possible for profit? That's what business is. That's what it does.

quote:I use Medicare as an example because they cut out the insurance providers and pay the docs and hospitals directly. They represent the single largest provider of care in dollar terms in our country. And they've had decades to show if our govt can more efficiently use the dollars given it to provide care versus other options. Hard to give them a passing grade if that is the goal. So from where comes the faith that our govt can somehow reverse an already abysmal performance?

Partisan politics will probably prevent it from being reversed. I, however, still think it can.

quote: Not remotely true, but the endless need to characterize what you think I believe is always entertaining.

Our military is excellent. The post office provides a terrific service. Our courts do a fine job, on balance. Respect for property and contracts, while not what it once was, is still better than in most places. The FAA controls the airspace with a reasonable degree of proficiency and safety. There are many basic functions that I value in our govt.

That's really the first time you've ever said anything like that that I remember reading. While you may see me as a naive and emotional liberal progressive, I usually see you as a cold anti-government libertarian that will defend corporations no matter what they do and hold them responsible for nothing they do. That comes from years of conversations.

quote:Our biggest problem areas are where we have let the Federal govt bribe the people with their own money into thinking they can provide better social services than they could for themselves

I don't look at it exactly that way. EVERYONE knew the Boomers were going to get old one day.

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